Taxation of expatriates

Last week I explained the principle of the person’s tax residence for the purpose of taxation in Rwanda. As you may have realized, taxation of expatriates on international assignment in Rwanda is one of the most complex areas of tax law. The residency tests used for taxation are different from that used by other Government agencies such as the Immigration Department. For example you could be living in Rwanda illegally, from the Immigration Department’s perspective, but that would not stop you from being resident for purposes of taxing your income in Rwanda. Generally, we saw that you are Rwandan resident for tax purposes if you have always lived in Rwanda, and have your permanent home in Rwanda. This means that an individual will be considered tax resident in Rwanda if he or she has his or her permanent home in Rwanda. For individuals with only one permanent home, there is no problem. But if you are one of those who have more than one permanent home in more than one country, then you may be resident in both countries, and therefore subject to tax in both countries. So what is a permanent home? Generally in tax law, a permanent home is defined as a permanent place of abode. This means a home could simply be a furnished room in an apartment or hotel, as long as it is available to you on a permanent basis. Most expatriates who are on assignment for long periods of time normally rent out their houses back in their home country, when they move with their families. If you are in that category, then technically your house back home which you have rented out is no longer readily available to you for your accommodation, and as such it ceases to be your permanent home. This may be good for the expatriate if as a result it means that the expatriate is no longer a tax resident in his home country, and therefore the income they earn in Rwanda is not subject to tax back home. If you are no longer a resident of your home country, then chances are that you are now a resident of Rwanda for tax purposes. It is very rare to find an individual who is not tax resident in any country at all. For one to achieve this, they would have to spend quite a lot of time in the air flying from one country to another. This would most likely be more expensive than settling down in one country of your choice and paying taxes. If you are a Rwandan national, who has always lived in Rwanda, and you happen to go overseas temporarily, and you do not set up a permanent home in another country, you will remain tax resident in Rwanda. This would still be the case regardless of how foreign your accent may sound when you come back home. For as long as you never ceased to be Rwandan resident, as a result of keeping your permanent home in Rwanda, you will always be Rwandan resident for tax purposes. This is the reason why all Rwandan diplomats who are working outside Rwanda on official Government business in our foreign embassies are treated as Rwandan resident for tax purposes. The tax implication of being Rwandan resident for tax purposes is that all your worldwide income will be subject to tax in Rwanda. Of course this does not apply if you have diplomatic status, since diplomats are exempt from taxation. The author is Tax Manager, PwC Rwanda frobsiher.mugambwa@.rw.pwc.com